Ulster sought over twice the €220k lending cut-off

By Peter O’Dwyer

Friday, January 30, 2015

Ulster Bank lobbied for an upper limit of more than twice the cut-off point the Central Bank will allow mortgages with a 10% deposit to be approved for.

Earlier this week, the Central Bank announced new mortgage lending restrictions which included a concession that first-time buyers would only have to provide a 10% deposit against which to secure a mortgage for a property up to the value of €220,000.

Above that limit, a requirement for a 20% deposit on that additional portion of the loan would also be required.

In submissions made to the Central Bank last December as part of the public consultation process however, Ulster Bank chief executive Jim Brown wrote to Central Bank governor Patrick Honohan proposing that home-buyers should only be required to provide a 20% deposit for loans in excess of €500,000 - more than twice the €220,000 cut-off point the Central Bank has introduced.

Mr Brown also outlined concerns that the original Central Bank proposals — which did not include the concession for first-time buyers — had the potential to undermine the policy of successive governments and the fabric of Irish society by denying cohorts of the population the opportunity to own their own home.

A loan-to-value (LTV) limit of 80% – ie requiring purchasers to provide a 20% deposit – was initially proposed for all but a maximum of 15% of primary dwelling mortgages.

Mr Brown said such measures, in addition to a loan-to-income limit of 3.5 which was retained in the restrictions outlined by the Central Bank on Tuesday, could put the nascent housing market recovery at risk and serve to undermine the overall shared objective of ensuring a fully functioning mortgage market.

He also labelled the exemptions to LTV and LTI proposals as unworkable.

Mr Brown was among those who lobbied the Central Bank not to immediately introduce an 80% LTV limit on mortgage lending.

The Department of Finance, Fianna Fáil, Sinn Féin, and AIB were among those in opposition to the 80% limit which, bar the first-time buyer concession, the Central Bank imposed regardless.

In its submission, Permanent TSB said it considered the timing of the Central Bank’s intervention to have come too early in the economic cycle and warned it would have significant impact on the potential recovery to a more stable housing market.

The bank suggested that closer to the end of 2015 would be a more appropriate time for the Central Bank to consider introducing such measures.

A number of submissions expressed concerns that the proposed measures would prevent a large cohort of potential buyers from accessing the market and could consequently exacerbate price pressures in the rental market.

The Department of Finance warned: “The introduction of the macro prudential measures is likely to result in an upward shift in demand for rental accommodation with a potentially significant rise in rents in the short to medium term. The increased cost of renting could impact on Ireland’s ability to compete internationally.”

Many groups also lobbied for measures to be phased in over time, with suggestions generally ranging from a year up to 18 months.